11/15/2007 @ 6:00PM

The World's Biggest Industry

In the narrow back streets of Hong Kong, you can perch on a stool in a modest stall, and slurp down a bowl of piping hot prawn wonton noodle soup for a few dollars. This bustling little eatery is the smallest of small businesses. But it’s part of a vast global industry–one that, with swiftly growing appetites in countries such as China, India and Brazil, is expanding at a remarkable pace.

The noodle stall is one of the reasons analysts get jumpy when asked to quantify the size of the global food industry. “I could give you a number, but it would be pretty misleading,” says Jonathan Banks, business insights director at AC Nielsen, the market research firm. “I’d rather not.”

Like the peas on your plate, financial figures for food are notoriously hard to capture. “Governments have figures for the percentage of personal-consumption expenditures that go toward food,” says David Palmer, senior food analyst at
UBS
. “But if you want not just any food, but what we call packaged food, you have to define what packaged food is. Then you start to deal with the nuances of that, and you have a near impossible task.”

Euromonitor International reckons the packaged food industry–including everything from pasta and cooking oil to canned and frozen foods–is worth almost $1.6 trillion. Meanwhile, the World Bank puts the food and agriculture sector at 10% of global gross domestic product, which, taking the bank’s 2006 estimate of about $48 trillion, would make the sector worth about $4.8 trillion.

Food, however, is a confusing commodity, and our noodle seller’s soup illustrates why. His wontons are made from shrimp, part of the global seafood market, which the Food and Agriculture Organization (FAO) says is worth more than $400 billion. That’s simple enough.

But the shrimp are covered in a wrapper whose primary ingredient is flour, which could be measured as a commodity or in its milled form. And is the dish they are in soup or noodles? Euromonitor says the market for soup is worth $12.9 billion, and the market for noodles, measured separately, worth $27.2 billion.

The trouble is, food is a commodity, an ingredient, and a meal, and its value can be measured at every stage along that chain.

“If you look at it as the output from the farm sector, it’s sold and processed, and sold again,” says Mark Gehlhar, a senior economist at the U.S. Department of Agriculture. “Then you have flour being produced and dough being produced. So you can easily double count.”

Of course, you could also lump our noodle soup seller’s business in with the restaurant trade. Euromonitor puts the global consumer food-service business–everything from cafés and fast-food chains to full-service restaurants–at $1.85 trillion. But with many restaurants operating on a cash basis, even in the U.S., the true value of this industry is hard to pin down.

In fact, a huge amount of food is bought and sold informally. “When you talk about the food industry, the first thing people think of is Coca-Cola or Starbucks,” says Florence Egal, a nutrition specialist at the FAO. “But of course, women’s groups in Mexico transforming maize into tortillas and sending them from house to house would also be part of the food industry.”

Despite these difficulties in measuring the absolute size of the food business, nearly everyone agrees: The sector is growing at an astonishing pace.

Changing lifestyles are part of it. Many of us don’t want to cook any more (or don’t have the time)–rich pickings for companies producing ready-to-eat meals and food packaged in everything from squeezable tubes to microwaveable bowls.

Since more people now live in cities than outside them (this year is the tipping point, according to the United Nations), formerly self-sufficient rural families are providing new customers for the global food business.

Meanwhile, a trend toward eating more healthily, especially in rich countries, has spawned new sub-sectors, such as the organic food business, and “functional foods,” like so-called neutraceuticals, which mix medicine and nutrients.

However, the biggest growth engine is the developing world. As nations such as China, India, Brazil and Russia become wealthier, they are changing their eating habits. In particular, they’re buying more packaged foods and consuming more meat.

To meet demand, big retailers such as
Wal-Mart
and Carrefour have been building more supermarkets around the world. “You’ve got the double benefit of population growth and increasing standards of living,” says Banks. Together, those add up to growth in modern retailing.

Between 1980 and 2001, the five largest global supermarket chains (all of them based in Europe or the U.S.) each expanded the number of countries in which they operate by at least 270%, says the FAO.

To grasp the potential market for food companies, Merritt Cluff, an FAO economist, suggests thinking about the calories being sold. “China’s average [daily] calorie count is 2,500 [per person], whereas in the U.S., it’s 3,500 or higher,” he says. “If you were to add, say, another 1,000 calories consumption to each Chinese person, you’re talking about a lot of business.”

Alain de Janvry, co-director of the World Bank’s World Development Report 2008: Agriculture for Development, argues that with appetites expanding in many countries and food prices rising, it’s not only large agribusinesses that could benefit. Small-scale farms and cooperatives in developing countries could use their increasing revenues to improve the efficiency of their operations, enhancing their competitiveness.

If he’s right, it means that more of the world’s poor farmers will be able to put additional food on their own tables through the business of feeding others.